Dollar Soars Ahead of NFP, New Trade Levies Shake the Market
EUR/USD Opens With Gap as Trump Tariffs Scare Markets
As it was widely anticipated, the Federal Reserve (Fed) decided to keep the rate unchanged last week. However, the approach was hawkish, which raises further questions regarding the future: is this just a one-time skip of the cut or is the Fed preparing for a pause in rate cuts?
The FOMC Statement mentioned that inflation was “somewhat elevated”. Previous iterations of this document mentioned that inflation is approaching the 2 % target, so this hawkish stance indicates that the rate may be kept at current levels for longer. Fed Chair Powell also mentioned several times during his press conference that the economy is strong, so the Fed is in no rush to ease the monetary policy further.
Powell also mentioned a stable labor market, which ties in with this week’s major Non-Farm Payrolls (NFP) release, which is the main indicator of labor market strength.
The Trump administration imposed a 25% tax on Mexican and some Canadian products, and a 10% levy on Chinese imports. The decision reverberated across the markets and ignited fears of a trade war, with Mexico and Canada promising countermeasures. China said it will challenge the tariffs at the World Trade Organization.
Economic Calendar Highlights
The first notable release of the week will be the Eurozone Core Consumer Price Index (CPI), which is expected to drop slightly from the previous 2.7% to 2.6% (year-over-year numbers). The release is scheduled for Monday at 10:00 am GMT. Also Monday we have the ISM Manufacturing PMI, which shows the opinions of purchasing managers about overall business conditions in the manufacturing sector. The release is set for 3:00 pm GMT.
The ADP Non-Farm Employment Change will be released Wednesday at 1:15 pm GMT, trying to mimic the government-issued NFP report that will be released 2 days later. Its impact is usually mild. The ISM Services PMI will be released the same day at 3:00 pm GMT.
The Bank of England is expected to cut the rate this week from 4.75% to 4.50%. The meeting will take place Thursday at 12:00 pm GMT.
The main event of the week is scheduled for Friday at 1:30 pm GMT: the Non-Farm Employment Change report, aka the Non-Farm Payrolls. It shows the change in the total number of employed people during the previous month and it’s the main gauge of labor market health. Friday’s report is expected to show that only 154K new jobs were created, down from last month’s 256K.
Technical Outlook – EUR/USD
The euro bulls failed to take the pair above 1.0500 and now we have a perfect rejection at resistance, which increases the importance of this level. The Fed’s hawkish stance gave the dollar new strength and took the pair below the 50-day MA.
The new tariffs imposed by the Trump administration triggered a huge gap as the previous week ended right on 1.0350 support and this week opened on 1.0220 support.
The pair has now returned below the long-term bearish trend line but historically, gaps are closed (the price returns to the place where the gap originated), so we may see a bounce back above the trend line.
A major support is located at 1.0220 and a big role this week will be played by the U.S. Non-Farm Payrolls report so the technical side may take a step back to make way for the fundamental.
